Document de travail

Innovation, Spillovers and Venture Capital Contracts

Roberta Dessi


Innovative start-ups and venture capitalists are highly clustered: Silicon Valley is probably the best-known example. Clusters differ in the contracts they use, and in how they perform. I explore the link between spillovers, contractual design and performance. I find that more "incomplete" contracts, with fewer contingencies linking entrepreneurs’ rewards to performance benchmarks, become optimal when positive spillovers are large. The contracts enable the innovative entrepreneur and his investor to extract some of the surplus they generate through positive spillovers for new entrants. This provides a new rationale for contractual incompleteness, and may help to explain observed contractual practice in Silicon Valley.


innovation; spillovers; venture capital; incomplete contracts;

Codes JEL

  • D82: Asymmetric and Private Information • Mechanism Design
  • D86: Economics of Contract: Theory
  • G24: Investment Banking • Venture Capital • Brokerage • Ratings and Ratings Agencies
  • L22: Firm Organization and Market Structure


Roberta Dessi, « Innovation, Spillovers and Venture Capital Contracts », TSE Working Paper, n° 11-253, décembre 2011, révision décembre 2013.

Voir aussi

Publié dans

TSE Working Paper, n° 11-253, décembre 2011, révision décembre 2013